PSDP disbursements

According to a Business Recorder exclusive, the government has so far released 183.5 billion rupees for Public Sector Development Programme (PSDP) against the budgeted 525 billion rupees. The Planning Commission’s website indicates that releases during the first two quarters are to be 20 percent each of what is budgeted while it rises to 30 percent during the last two quarters of a fiscal year. Releases so far amount to around 35 percent of what was budgeted – a percentage that is below the target for the first six months by 5 percent or around 26.2 billion rupees in total.

This shortfall is not too significant an amount yet but there are fears that the government would be compelled to drastically slash development expenditure in the last two quarters of the ongoing fiscal year, a normal enough practice for the past two to three decades, when the fiscal deficit is seen to be rising to unsustainable levels. That the fiscal deficit is moving towards unsustainable levels today is evident especially after the approval of the National Action Plan as part of the National Internal Security Strategy envisaging around 100 billion rupees while the actual amount budgeted for the purpose was less than a billion rupees. In addition the incumbent government, like its predecessors, has set too ambitious revenue targets, which are unlikely to be met this year as well.

Few would oppose the diversion of resources from PSDP to security given the large number of fatalities as well as loss of physical assets including infrastructure and private property, attributed to terror attacks throughout the country. However, be that as it may, this is disturbing because it undermines the government’s economic philosophy that maintains that the engine of growth would be the private sector as well as massive infrastructure and social sector development projects that would eventually fuel domestic productivity and generate employment. The question is given the massive rise in resource needs for security has the government put in place an alternate economic plan that would not compromise its economic agenda.

To date the Finance Minister’s economic vision has focused on two factors. First, growth would be led by private sector, which has enabled him to justify his numerous foreign trips seeking investment inflows (though the inflow even remains less than during the PPP-led coalition rule due to law and order problems as well as a badly performing energy sector). Heavy borrowing from the private commercial banks, with the International Monetary Fund (IMF) insisting that borrowing from the central bank – a highly inflationary policy – be discontinued, has crowded out private sector borrowing with negative implications on large-scale manufacturing growth. At the same time Dar has focused on containing the budget deficit, which is at the cost of lower growth.

And secondly, infrastructure growth that the incumbent government claims is being funded by foreign investors, particularly the Chinese with 42 billion dollars pledged in a public-private partnership. This amount appears to be too ambitious given that China’s total global foreign investment today is a bit over 60 billion dollars while its total investment in Pakistan has not been more than 300 to 400 million dollars per annum; besides details of the deals struck with China have not yet surfaced, the rate of interest charged is unclear and with China expressing concerns over a partnership with Pakistani private sector the deals would have to be revisited.

One would hope that the government revisits its economic policies and begins to make appropriate changes. There is a need to reduce the deficit in a phased manner; so as not to compromise growth, reduce borrowing; be it from commercial banks or through issuance of bonds/sukuk to contain current expenditure and focus on security and energy sector in its development aims – aims which cannot be met unless there is a massive improvement in governance.